Samsung forecasts decline in operating profit

SEOUL--Samsung Electronics Co. forecast a decline in its operating profit for the second consecutive quarter, underscoring the importance of finding a fresh growth driver beyond smartphones this year.

The announcement comes just days ahead of the official rollout of the company's new flagship smartphone, the Galaxy S5, on April 11. Amid views that the new phone lacks features that differentiate it from existing models, analysts expect the company to face challenges to outpace sales of its previous model. Samsung faces additional hurdles in the second quarter as the country's top two carriers began a partial sales ban on all new phones. The carriers had been over-subsidizing phones beyond the legal limit, triggering regulatory moves from the government to penalize them.

The world's largest mobile-phone maker by shipments said its operating profit likely fell 2.1% to 6.6% from a year earlier for the three months ended March 31. The results follow a 6% decline in operating profit in the fourth quarter, which was the company's first annual drop in two years. Samsung has been hit by falling average prices for its smartphones amid intense competition from rivals such as Apple Inc. and low-cost handset makers in China.

South Korea's biggest company by market capitalization makes memory chips, TVs and home appliances in addition to smartphones, but more than half of its profits come from selling mobile devices, highlighting its hefty dependence on that category.

Samsung said Tuesday it estimates an operating profit of 8.2 trillion won to 8.6 trillion won ($7.8 billion to $8.2 billion) for the first quarter. Sales will likely come in between 51 trillion won and 55 trillion won, the company said in a statement. A year earlier, Samsung reported an operating profit of 8.78 trillion won on sales of 52.87 trillion won a year earlier.

The profit estimate came in line with market expectations. A poll of eight analysts expected Samsung's operating profit at 8.4 trillion won on sales of 54.4 trillion won.

The company doesn't disclose net profit estimates and final earnings are due later this month.

Until the third quarter of last year, Samsung had been reporting record-breaking results largely driven by solid smartphone sales, with its operating profit reaching a peak of 10.2 trillion won. Since then, the company earnings have taken a turn as its key mobile unit struggled to combat falling prices while lavish marketing expenses continued to pressure margins.

Samsung spent 12.2 trillion won in marketing expenses in 2013 compared with 10.9 trillion won the year before. In January, the company said it would try to lower the ratio of marketing expenses to revenue this year by better allocating costs.

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